This is assuming high (though less then full) employment. In such a case, then this is true, however assume (or just look at reality atm) high unemployment. Say the gov't lowered taxes and, lacking the funds, didn't support public works. Those who would of been employed by the public works would remain unemployed while the saved tax money for the employed, considering a slumping economy (otherwise unemployment would be a non-issue), would go not to the private sector and thus job creation but bills and nest eggs. As a result, wealth that would have been created by the gov't remains nothing more then potential wealth.
In short, the Broken Window Fallacy is only a fallacy when not needed. During times of economic hardship, such as the Long and Great Depressions or the Great Recession (still ongoing if you hold that it's a double/triple, ect. dip event), it becomes a matter of economic stimulus.
That being said, high taxation/spending during times of strong economic output to 'create wealth' is a fallacy for the reasons cited in the video.
In short, the Broken Window Fallacy is only a fallacy when not needed. During times of economic hardship, such as the Long and Great Depressions or the Great Recession (still ongoing if you hold that it's a double/triple, ect. dip event), it becomes a matter of economic stimulus.
That being said, high taxation/spending during times of strong economic output to 'create wealth' is a fallacy for the reasons cited in the video.
Savings are not a bad thing. The only time when those people will save that extra tax money is when their savings are already low, not when they are high. If they are already low, then they should be saving. Not saving only continues the culture of debt and we saw how that worked out the last few years. It really amazes me how so many people today see debt as a good thing- as something necessary to move markets, especially after what it just did. It was only 20 years ago when going into debt was not only ill-advised, but seen as morally wrong. Now, it is encouraged.
No it doesn't. That is a very arguable matter. I personally believe that the New Deal extended the Great Depression and the "stimulus" will extend this recession. And I am not alone- remember that of the two mainstream schools today, it is the Keynesians who believe in public works stimulus to get out of recession and it is the Chicago school that doesn't. The Austrians, perhaps an up-and-coming school in terms of popularity also do not believe in public works stimulus.
Hoover was far from a capitalist and while he may have pretended to be against regulation, he actually regulated a lot (i.e. giving in to the agricultural lobby for price regulations.) In that sense he is comparable to Bush, who did the same thing and FDR comparable to Obama when it comes to the New Deal/Stimulus. Also, if you look at the DJIA and industrial output in the couple years before the New Deal as opposed to after the programs started to kick in, there is a strong argument that it worsened things.And yet it ended in short order. Hoover wanted the markets to work themselves out, all we got was from that was an almost communist revolution until the New Deal triggered the recovery and restored faith in capitalism. Obviously I'm not thrilled by that outcome.
On a related note, have you ever heard of the Depression during the early 1920s ? It was very comparable in terms of DJIA, industrial, and agricultural slowdown. It ended in 4-5 years after Harding actually did nothing/very little to try to "fix" it. That's the depression you never hear of because it ended so quickly, but in terms of magnitude it was very similar.
I immediately saw the fallacy of the broken window fallacy idea.
I call it "stationary wealth" - and it's just one of the reasons for the impracticality of free market capitalism.
The problem is, capitalists seem to see human beings as parts of their machine, when in actual fact, they are individuals, they are living sentient creatures.
One major reason capitalism doesn't work is because greed exists. The entire capitalist system is based on greed as a workable basis. Therefore, it hammers the nails into its own coffin - not to mention that the mentality of only looking out for yourself is not exactly a good ideology for society.
Furthermore, capitalism, through the institutionalisation of private property, is socially divisive and creates class conflict.
But most of this is irrelevant to the discussion. Have fun with your fantasies.
I call it "stationary wealth" - and it's just one of the reasons for the impracticality of free market capitalism.
The problem is, capitalists seem to see human beings as parts of their machine, when in actual fact, they are individuals, they are living sentient creatures.
One major reason capitalism doesn't work is because greed exists. The entire capitalist system is based on greed as a workable basis. Therefore, it hammers the nails into its own coffin - not to mention that the mentality of only looking out for yourself is not exactly a good ideology for society.
Furthermore, capitalism, through the institutionalisation of private property, is socially divisive and creates class conflict.
But most of this is irrelevant to the discussion. Have fun with your fantasies.
As you said, this post doesn't address the matter at hand. Even then, your argument simply uses rhetoric and very little substance. Capitalists don't see people as machines- that is your opinion. You know I am a capitalist, but I far from see people as machines. As for being a part of a machine- that really depends on your definition of machine. Machines have parts that work together, much like communities do- I assume you'd prefer that terminology better.
And you keep saying capitalism is not workable, yet there you provide no hard evidence or proof or any response to my claims in this thread.
As for greed- it is naive to think that greed can be abolished- good luck with that.
(and when it comes to society, capitalist-leaning nations historically have tended to do better in terms of quality of life, health, education, lifespans than more non-capitalist nations. I'll stick with capitalism.)
Look at your example in the real world. Govt lowers taxes, giving the employed more money. What do they do with that money?
1. People that could not pay their bills would now have extra money to pay their bills, possibly avoiding bankruptcy or default. Lenders would not loose money due to people defaulting on loans, allowing them to continue their business and avoiding employee layoffs. The risk of loans (the cost of money) is decreased because more people are paying their bills, bankruptcy and defaults are reduced, which translates to lower interest rates (lower risk) and more money available for new businesses or to help existing businesses get through the economic downturn.
2. People that already can pay their bills will spend some of the extra money on entertainment and other nonessentials, and save rest. And what happens with "savings"? It doesn't sit in a drawer doing nothing. It is loaned out to people and businesses needing money (see item 1 above). The additional money available reduces the risk and cost of money. Even during downturns, people are borrowing and businesses are expanding. Life may slow down for some people and businesses, but not all.
Would the govt public works employees be fired? Doubtful, since that impacts citizens directly and will result in disgruntled voters who will fire the politicians. Politicians threaten to reduce the fire department, police department, road department, because the pols want to use fear to force their own agenda, but those are the last departments to be touched.
Did WWII get us out of the Great Depression and is it a good model for handling economic downturns? WWII helped, but it was a unique situation. Literally, our survival was immediately threatened, and that forced the people and the govt to spend money in a timely manner on items that would improve our survival. A lot of that money was wasted in economic terms (spent on military equipment and training, loaned to allies), but there was a side benefit. The infrastructure required to fight the war was also applicable to peace time industry. The road system, airports, transport aircraft, factories, improvements in food preparation and storage, automation of factories to produce the huge quantities neede to fight the war, were all useful in peacetime. Having that capbability is useless without the need for those products, and that is the other result of WWII. People rationed far beyond what was required for the Depression. This created a huge pent up demand for goods.
You can argue that WWII got us out of the Depression, but it was not because it was a massive govt works program. WWII created a unique situation: a huge demand for goods of all kinds, and the ability to produce those goods within the US . "Within the US" is critical since that allowed the creation of many jobs for returning soldiers and people previoulsy working in defense related efforts. WWII also broke social barriers such as women in the work force, which allowed a better use of human capital which was previoulsy idle.
The govt tried to spend its way out of the Great Depression before WWII, it didn't work as even the FDR insiders admitted.
Money spent by the government comes from the private sector. The more government takes the less people have to save or invest (both good things - saved money available for banks to loan)
In a recession taking more money out of the economy is not a good idea.
And yet it ended in short order. Hoover wanted the markets to work themselves out, all we got was from that was an almost communist revolution until the New Deal triggered the recovery and restored faith in capitalism. Obviously I'm not thrilled by that outcome.
The Depression lasted a decade. That's not short.
Keynsian spending was tried for a decade in Japan. It is a wonderful model of exactly how not to get out of a recession but extend it and run the national debt up above 100% of GDP (currently at 189% of GDP)
What economic system is better, why and where is it at work today?
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Indeed, I only realised afterward I'd actually neglected to explain my point fully. Stationary wealth exists - the rich tend to hoard their stash. This makes the economy inefficient, causes inflation, and makes the wealth gap wider. Since most tax is progressive, it takes from those that are more well off - those that can afford it. The bourgeois are thus obligated to draw on a greater proportion of their wealth and spend it. If there were a flat tax, or some such regressive scheme, then yes, this would make sense. But that's not the reality. It's more complicated than just creating jobs and thus feeding the economy, but my point is, no, it's not applicable to public spending.
Precisely. And so, free market capitalism is unworkable.
I disagree. If there is a connection, I can think of many left-leaning countries that do far better than the US in these respects.
I can think of several that are preferable. Personally, I see the most desirable systems currently in existence to be those of Scandinavian social democracies. The supposedly left ones reek of state capitalism and result in a most unhealthy combination of corruption and authoritarianism. Along with inefficiency and a deficiency in democracy. The liberal democracies in Scandinavia are far from perfect, but they have a level of equality, popular sovereignty, a quality of society - healthy and well-educated - that is unrivalled throughout much of the world.
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However, I should add that it is merely watered down capitalism, rather than anything necessarily resembling my ideals.
Savings lead to productions- just look at any long-run economic boom and you will see it. People need capital to invest and grow, without saving money, no one would be able to do that.
Most wealthy people don't just sit around and do nothing. They are often owners or heads of companies and as you know Dirk, corporations like to grow and expand. How do you think that happens if everyone is just sitting on their money? The only time when people continue to sit on money is when the atmosphere is risky and uncertain as it is a sort of insurance in case something unexpected happens.
As for savings leading to inflation- you'll need to explain that one. Same goes for economic inefficiency. The industrial revolutions and the emergence of newer long-term markets have all been built on the back of hard capital and investment- a lot of it by the rich.
Put another way- you are taking more from those who have done well for themselves just because they have done well from themselves. You are punishing success and thus reducing the desire for success. It's a moral hazard.
A flat tax is more fair than a progressive tax though because at least you aren't punishing earnings over a certain amount. As for the rich being obligated- that's your opinion.
Just because greed can't be abolished doesn't mean that everyone is greedy or that everyone just wants to destroy others. That is far from the truth. (not to mention that all other systems would still have those greedy people and if you are looking to government for answers, the power of coercion is often more potent than the power of money.)
Well the US is no longer the capitalist nation it used to be. But even then, historically it is one of the most capitalist and one of the most successful. You mentioned the Scandinavian countries, but the jury is still out on them when it comes to debt. Also, it should be noted that in some senses they are pretty capitalist with Denmark being ranked at the top (or around it) several times in terms of labor freedom- being able to hire and fire people with ease.
To get back on point with the OP though, you can't say that the OP video doesn't highlight a major downside of these "public spending" models. Letting the private sector handle the spending would lead to further growth and a quicker recovery. You mentioned the rich sitting on money, but if you look at reports from tons of Wall St. companies and a bit of news coverage of late, they are saying they aren't spending for the exact reason I listed above- uncertainty [which is being created by the administration's meddling in the market.] Not only does public spending not look at the potential spending of the private sector, but it creates uncertainty, which leads to investors holding on to money as security.
Which Sandanavian country? Norway's economy is different from Denmark's and Sweden's because it can rely on large oil deposits.
Keep in mind that Norway has a GDP that is less than half the size of the stimulus package (about $275 billion GDP opurchase power parity) and is one of ther most homogeneous populations on the planet and has half the population of NYC. It is a free market system w/lots of income from the oil to fund its welfare system. Demark is a free market state with a lot of government entitlements to redistribute wealth. Sweden is too.
They're very much like the US only they tax more and provide a wider array of benefits.
So, this capitalism that you said isn't really working (impractical) appears to be doing just fine. Your ideals I'm not privy to but they are not at work in any economy today. People living in liberal democracies can play a significant role in shaping their countries' economic systems. Free market capitalism with varying degrees of wealfare and wealth redistribution seem to dominate. Would this not suggest that it is the preferred systyem by which free people in wealthy western economies have arranged their affairs such that it produced this affluence?
What's impractical about that?
This is a standard propaganda device. You create an imaginary argument, call it a fallacy, and then try to tie it to arguments for which you have no reasonable rebuttal.
The original term broken window syndrome applies to an approach to crime. That probably gives it name recognition.
Ironically, the supposed fallacy strikes me as similar to the basic premise of supply side economics. Waste is good, because it keeps the economy moving.
What?s the difference between fixing a broken window and buying a Ford Expedition when you have no real reason for it. In both cases you are taking resources that could be spent else where. However, fixing the broken window meets a real need. Buying the Ford Expedition costs a lot more and continues to cost because of insurance and fuel.
The supply siders say this is good because the money spent on the Ford Expedition creates jobs, etc. What?s the difference between that and the so called broken window fallacy?
In one case, we have a real need being met, in the other, an artificial need. The only waste with the window is the broken window to begin with, but that?s the argument on the crime issue. It has to do with funds and resources spent on fighting crime and its benefits.
The waste with the Ford Expedition is resources taken from the common pool and thrown away. This is real waste. Of course, it involves the most sacred right in our social order, the right to be stupid.
Before you bring up the possible uses for a Ford Expedition, it was a given in the argument that there was no real need for the vehicle to begin with. This is not a stretch, in most cases the off road capabilities of the Expedition go unused. In many cases, the extra passenger space is never used. I don?t recall every seeing an Expedition with more than five passengers. I?m sure it happens, I just don?t recall seeing it.
I might add that I would like to own a Ford Expedition. I live in an area where in five minutes you can be off road. I have hobbies which take me off road. When my family comes to visit, it would be nice to load everyone in one vehicle and head for the casinos. Do I have a real need for a Ford Expedition. No.
The original term broken window syndrome applies to an approach to crime. That probably gives it name recognition.
Ironically, the supposed fallacy strikes me as similar to the basic premise of supply side economics. Waste is good, because it keeps the economy moving.
What?s the difference between fixing a broken window and buying a Ford Expedition when you have no real reason for it. In both cases you are taking resources that could be spent else where. However, fixing the broken window meets a real need. Buying the Ford Expedition costs a lot more and continues to cost because of insurance and fuel.
The supply siders say this is good because the money spent on the Ford Expedition creates jobs, etc. What?s the difference between that and the so called broken window fallacy?
In one case, we have a real need being met, in the other, an artificial need. The only waste with the window is the broken window to begin with, but that?s the argument on the crime issue. It has to do with funds and resources spent on fighting crime and its benefits.
The waste with the Ford Expedition is resources taken from the common pool and thrown away. This is real waste. Of course, it involves the most sacred right in our social order, the right to be stupid.
Before you bring up the possible uses for a Ford Expedition, it was a given in the argument that there was no real need for the vehicle to begin with. This is not a stretch, in most cases the off road capabilities of the Expedition go unused. In many cases, the extra passenger space is never used. I don?t recall every seeing an Expedition with more than five passengers. I?m sure it happens, I just don?t recall seeing it.
I might add that I would like to own a Ford Expedition. I live in an area where in five minutes you can be off road. I have hobbies which take me off road. When my family comes to visit, it would be nice to load everyone in one vehicle and head for the casinos. Do I have a real need for a Ford Expedition. No.
You are missing the main point of the arguement. The issue is the creation of wealth. Review your Ford Expedition example.
Assume I have $30,000 which might be my college fund or emergency fund or part of my retirement savings or my savings I want to use to buy a new car. If my house is damaged and I have to spend $30,000 to repair the house, in the end I am worse off than when I started because I am out $30,000 with nothing to show for it (I have the same house I started with). I now have to replace that $30,000 and the original purpose of the money is delayed.
Or I can buy a Ford Expedition. I now have a house and a Ford Expedition, and my net wealth is basically unchanged (ignore vehicle depreciation for now).
Do I need a Ford Expedition? That's up to each person. You might not see a need for an SUV, but here in Alaska we do.
In both cases, the $30,000 was spent and was circulated in the economy (through the construction company, or through the Ford dealer), but in the first case, my net wealth has decreased and my financial plans have been hampered.
Apply that on a larger scale with something like Hurricane Katrina. The billions of dollars spent to repair the damage and relocate people was a net loss. The original purposes for that money must be either canceled or delayed and new money must be found.
The same arguement can be made of taxes and the stimulus. Even though the money is spread over a lot of people, the negative impact is real.
Whether you or I think the use of the money is appropriate is not relevent. The point is that the money is taken from one purpose to be applied to another purpose, and teh net gain might be negative.
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I guess I missed the point. If you are saying that it’s bad to have a broken window. Yes. If you are saying that it is good, you are an idiot. So who is making this argument? Nobody except the chap creating the broken window fallacy that I can see.
So what is the point? Well it seems that he is comparing public spending to the broken window.
So what is the reason for the public spending, to throw rocks through windows, or is it to fix problems or invest in the national interest? Of course it could be graft, but normally, that involves the private as well as the public sector.
In your example. Is it good to damage your home, no. Did you do it intentionally to increase your wealth? However, if you have a damaged home, you have two choices, fix it or leave it be. If you leave it be, you will lose value on your home, probably more than the cost of the repairs.
So where does choice enter the picture? Fix or not fix. So you spend thirty thousand dollars and you fix you home. Most likely, down the road, it will pay off.
Instead of fixing your home, you buy a Ford Expedition for thirty thousand. Maybe you can now, but that sounds a little low for a new one, about five thousand low.
You say ignore depreciation. That means ignore reality. That’s common in supply side arguments. I’m not accusing you of being a supply sider, I would never insult somebody without reason.
If you put the thirty thousand into repairing a damaged house, it’s an investment. In the long haul, it has been proven over time to be one of the safest investments you can make.
If you put the thirty thousand into a Ford Expedition, if you have cash, you lost five thousand by the time you drive it out of the showroom. Five years later, you have about twelve grand, if you are lucky, because if you bought a thirty thousand dollar Ford Expedition, you bought a low end one on a deal. That’s not counting fuel, maintenance and insurance. Most likely, you are lucky if you come up even.
This may be wealth creation, but I don’t see it.
Hurricane Katrina shouldn’t have benefited the economy unless there was something really wrong with the economy to begin with. However, after the hurricane, you have a choice, be stupid or smart. With the United States, stupid is a given. When the Netherlands had their North Sea disaster, they chose smart. That’s because the Dutch are smart.
Again, I don’t get the point, unless you are saying that anyone who says that throwing a rock through a window creates a net gain for the economy is an idiot. Unless you have a really anomalous example in mind, who can argue with that? So who is arguing with that?
Oh, by the way, did you notice that I said that it was a given in my argument that the Ford Expedition wasn’t needed. I doubt if Alaska is the main market for Ford Expeditions. Some of the folks who live where I live need them. Some, but not most.
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I don't think that's true. Wealth has value because it can be used to buy more goods and services in a market, not so it can look pretty in a trophy display, or something. The more successful businesses in a market would be the ones whose owners reinvest their profits back into their businesses; this includes hiring more workers, expanding the factory, buying more efficient tools to build whatever product it is, among other things that tailor to the needs of the specific business. All of these activities reinvest the wealth back into the economy, and benefit not just the business owner but the community as a whole - it's hardly "stagnant" as you put it.
Another point I want to make is that taxation is fundamentally incompatible with free market capitalism. If we assume that the basis of free markets is the right to private property, than taxation (force) is a direct violation of that right - it's just the logical conclusion. Since states are funded by taxation, then more generally free market capitalism is fundamentally incompatible with statism. I think it's important to keep this in mind when discussing the economic systems that exist in reality, e.g. the U.S. does not have a free market economic system (for this reason, and many others).
The Broken Window Fallacy is not limited to just economic results after something is destroyed (although even that is used by many stimulus backers- WWII getting us out of the Great Depression, 9/11 boosting the economy, wars helping the economy, etc.- we still see these arguments pretty commonly unfortunately.) It is not just spending to fix something, but also government spending that falls under this. Whenever a government spends, it takes the money from the private sector- that is the point. Government spending can't be stimulus because that money would otherwise have been in the private sector and been eventually spent. Even during times of saving, banks have that money and if there is an excess of reserves, rates would most likely go down and companies would borrow more to grow. Money only sits there when there is uncertainty and a low level of saving.
When it comes to the house example- take it the extreme and it becomes clear that even if it is a necessary cost, that does not mean it's good. Say that you destroy every single house in the country- sure everyone will have to rebuild their houses and sure it might be an investment, but that does not mean the overall market or society will be better off- in fact, it will definitely be worseoff as we could have kept all our houses and made some other goods, like expeditions instead. Expeditions may depreciate quicker than new houses, but at least we still have our houses and the old expeditions.
Actually World War II did get the US out of the Great Depression. Denial is nice, but sometimes the denied can bite you in the ass.
That?s a categorical statement. All I have to do is find one example where it?s not true, and your argument is dead. I?ll let you reflect on that.
Another categorical statement. You do love to live dangerously.
Not categorical. However, it ignores the Federal Reserve and presupposes that we have a free market in money.
Another categorical statement and a bit paradoxical at that.
However, when there are low interest rates, uncertainty as to the values of equities and fiat money demands a bit of faith, gold tends to look pretty, and if you polish it, so does silver. When the noble metals ascend, paper tends to descend.
This is all very nice, but I?m afraid it doesn?t make your point to me. I won?t assume what your point is, so perhaps you could tell me what it is?
Oh, more, all things come to him who waits.
Yes, if you ignore reality, everything becomes possible. You have changed the example. The house was damaged, not destroyed. If every house in the country is destroyed, unless we have left reality totally behind, there will be a slight hitch while the United States goes into bankruptcy along with almost every financial institution in the United States and a good many elsewhere. Ford will be out of business, and if you want an Expedition, you will need to barter, because money will be useless. There is reductio ad absurdum, and then, there is absurdity. You wouldn?t be a supply sider by any chance, would you?
You can't just prove something by saying it. It is a debatable point.
Ok give me one. There is nothing wrong with categorical statements if they are true- for example, all humans have blood.
Well that's probably because I don't believe the Fed should set the inter-bank rate. Even with it setting it though, reserves do play a role in rates other than the Fed Funds rate.
Ok fine, let's say every house was damaged. The same idea still stands- you would be using resources to fix those while instead [if they weren't damaged] you would be able to use those resources to build expeditions.
To some it is a debatable point. To some, evolution is a debatable point.
There is nothing wrong with flying an airplane if you know how.
The government sells a metric ton of gold and then spends the money. That?s one. That invalidates your argument.
It also invalidates your second argument. Two birds with one shot, not bad.
By the way, are dead Humans a subset of Humans?
I would prefer that there were no Federal Reserve. However, as long as we have fiat money, we will need something like the Federal Reserve. To transition from fiat money at the present time would probably be disastrous. On the other hand, keeping it will probably prove disastrous. I don?t really see a way out, but then, I?m stupid. I know there are smart people out there, but so far, I have seen no evidence of it.
It would be nice if I knew what the idea was. Alright, every house is damaged. The rest gets a little hard to figure. Do I have to fix the houses? Do I have a choice? It doesn?t really seem to matter because if the houses weren?t damaged, then I could spend money to do X, however, the houses are damaged, so I can?t spend the money that I would have if the houses weren?t damaged. That sort of figures but it sounds a little odd. I grant you, I?m not the sharpest tack in the box, so I might be missing something here.
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